Controversial effects of public debt on wage share: the case of the eurozone

Rosaria Rita Canale and Giorgio Liotti

Applied Economics, 2021, vol. 53, issue 39, 4533-4543

Abstract: The aim of the paper is to estimate the effects of increasing debt burden on the wage share of national income in the eurozone from 1999 to 2019 in an attempt to verify, through a dynamic panel data cointegrating technique, whether an increase in debt implies a redistribution of resources from workers to non-wage incomes. To deepen this analysis, the empirical investigation also distinguishes between change in primary public balance and interest payments to evaluate separately the effects of the two components of public debt on wages. The outcomes are consistent with a negative relationship between public debt as a whole and the wage share. However, when accounting for the two debt components, opposite results are registered as the debt service is negatively connected, while change in primary public deficit is positively connected with the wage share of national GDP. These results allow reflecting on the interaction between the monetary policy strategy and the national fiscal policies in the eurozone.

Date: 2021
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DOI: 10.1080/00036846.2021.1904122

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